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Could the wheels come off the local vehicle sector? TransUnion data shows drop-off in financed purchases

Could the wheels come off the local vehicle sector? TransUnion data shows drop-off in financed purchases
(Photo: Bing Guan / Bloomberg)

TransUnion’s Q1 2023 Vehicle Pricing Index shows 12% fewer finance agreements for passenger vehicles were inked in Q1, with new car sales declining by 2.6% and used car sales by 17.7%.

The signs are not good for the domestic vehicle sector. TransUnion Africa has now added its input to the mounting evidence that vehicle sales in South Africa are under strain, saying it has witnessed a sharp decline in financed purchases in the first quarter of this year, which has been driven by vehicle price inflation, declining consumer disposable income and negative consumer and business sentiment. 

That’s little surprise in the current economic climate. Not only are consumers under increasing financial pressure, but with a worsening power crisis, decreasing disposable income and another repo rate hike on the cards, even if they meet credit providers’ affordability criteria, they are less likely to extend themselves further by committing to big-ticket purchases. 

The latest findings from TransUnion’s Q1 2023 Vehicle Pricing Index shows that the number of financial agreements in the passenger vehicle market in Q1 were down 12% year-on-year (YoY), with new car sales down 2.6% and used car sales down 17.7%.

New vehicle prices rose from 4% in Q1 2022 to 6.3% in Q1 2023, while used vehicle prices went up from 7.9% to 8.1% in the same period.

In the used car market, three-year-old vehicle prices rose 10.2% YoY, reflecting a scarcity in quality used stock.

A year ago, the ratio of used vehicles to new was 2.18:1, which has declined to 1.86:1 in Q1 2023. It believes this drop reveals difficulties for consumers in accessing quality used vehicle stock. 

Quality used vehicles are becoming like hen’s teeth in South Africa. Historically, about 40% of used vehicles that were financed were between one and two years old; that has declined to only 20%. 

Consumers therefore either see better value in the new vehicle market, or are opting for significantly older vehicles because they cannot find quality used stock.

Finance options are limited for such older models, as most banks are only prepared to offer unsecured loans for models exceeding 10 years.

TransUnion says the trend towards older models might offer potential opportunities for the servicing industry, but it raises safety and emissions concerns which could lead to increased regulatory scrutiny. That’s not factoring in the Consumer Protection Act, around warranty of quality issues. 

More than 47% of new and used financed vehicles were SUVs.  

Sales of hybrid and electric vehicles both increased 3%, although the bureau says this is not a true reflection of the market as some wait periods are more than six months.

New passenger vehicle sales decreased 0.7% YoY in Q1 2023, and the export market for passenger vehicles fell 7.5%. The percentage of cars (new and used) financed below R200,000 declined to 20% in Q1 2023 from 25% in Q1 2022, which TransUnion says is likely due to the increased average purchase price of new vehicles.

Hatchbacks and SUVs accounted for more than 47% of new and used financed vehicles as consumers searched for value. 

Sedan sales declined in the new vehicle market but increased in the used vehicle market due to supply constraints.

Earlier this month, industry body Naamsa/The Automotive Business Council warned that the motor industry was starting to feel the pinch as affordability was becoming an increasing problem. A clear sign of consumer stress is a decline in bank approvals for new vehicle purchases – due in part to the effect of numerous interest rate hikes in recent times on the cost of instalments. 

Naamsa said it expects the domestic vehicle market to remain reserved for the greater part of the year. BM/DM

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